Acknowledging that there is a disconnect between lending policies to micro, small and medium enterprises (MSMEs) drafted by senior bank officials, and implementation at the branch level, public sector banks are now offering help to business owners to navigate through periods of stress. This will help target the government’s MSME loan programme better, experts at Mint’s Pivot or Perish webinar on Thursday said.
“In June, we appointed 80 assistant general managers across India who will now be the single point of contact for MSMEs (with the bank). This is what has been missing," said Challa Sreenivasulu Setty, managing director, State Bank of India. “There has always been a disconnect between senior management and branches. The MSME sector had a lot of sick units even before covid-related challenges at the operating level and banks had to decide whether to finance them or not."
“Lending to an MSME requires a lot of engagement and handholding from the bank and branches found this difficult," Setty said. “This has resulted in simple MSME products not being delivered in time, like loan against property or an overdraft. There are horror stories of customers having to visit a bank for 30-45 days (to get an overdraft). That is why MFIs and NBFCs have 30-35% market share of lending to MSMEs as most customers were not taken care of by banks. The disconnect cannot be completely removed, but we need to put an efficient system in place. The zonal officers will now be a single point of contact for MSMEs. They need someone to guide them and quickly make products available."
On 13 May, the Centre had announced an emergency credit guarantee line scheme of ₹3 trillion to help small business owners tide over the covid-19 crisis. However, so far, loans worth only about ₹32,000 crore have been sanctioned by public sector banks under the scheme. Mint reported on 11 June how government dues totalling ₹5 trillion to MSMEs had put them on the edge, after the lockdown began.
“Banks should disburse loans quickly to MSMEs as these are low-cost funds and credit guarantees are in place," said Naushad Forbes, co-chairman, Forbes Marshall. “At the same time, there are so many loan review mechanisms to ensure there is no bad lending. These two policies tend to fight against each other (making loan disbursal difficult."
Deepak Jain, president, Automotive Component Manufacturers Association, said it is still difficult to access bank funding. “It’s not easy for an MSME to get money. If an MSME does not find other ways to keep his business afloat, it will close shop. If MSMEs go down, banks will have more non-performing assets. The only solution is to digitize loan disbursal with flexibility and agility. If MSMEs get confidence that they can get loans, we can find a more stable outcome of this crisis," he said.
Setty said: “We want to revamp the delivery system. Just posting more officials does not make it better, the system has to improve and be more efficient."